The stock of both leading Japanese mobile social game companies dropped over 20 percent today following comments from Japan's Consumer Affairs Agency that a key game mechanic is in violation of the law. Other Japanese game companies that use the mechanic, including Konami and Capcom, also saw significant stock declines. Gree's founder, Yoshikazu Tanaka, lost over $700 million yesterday because of Gree's 23 percent plunge in stock value.

The complete gacha... or is that 'gotcha?'

The game mechanic in question is known as "kompu gacha" (complete gacha). Gacha is a game mechanic based on the coin-operated toy vending machines you find everywhere in Japan; it's essentially a lottery spin to get a virtual item. Nearly every game from DeNA and Gree use the "gacha" mechanic, as do games like PopCap's Bejeweled Blitz. With the "complete gacha" players who want to get a special/rare item must get a set of other items through gacha first. For instance, the user must first get item A through gacha, then item B (also through gacha), then C and D - and only if they can get items A-D (complete gacha) do they get the rare item.

This leads to users spending an inordinate amount of money to get extra "gacha" chances, which has already led to some crackdowns by Japan's Consumer Affairs Agency and an agreement by Gree and DeNA to limit spending by children. Apparently this has not gone far enough for the Japanese government, which has seen the number of complaints soar.

The Yomiuri Shimbun reported that the agency will ask social-network game operators to stop using the system because it prompts customers to pay excessive fees. One user racked up over ¥4 million (over $50,000, or £30,000) in charges in just two months. Typically one gacha play costs ¥300.

Konami's stock dropped 18 percent on the news; Namco-Bandai's stock declined 9.5 percent, and Capcom's stock fell by 6.6 percent. "The market for social games may shrink if the warning is issued," said Makoto Sengoku, a Tokyo-based market analyst. "This would ruin profit pillars." A ban on the complete gacha game mechanic could reduce Gree's net income by 18 percent and DeNA's by 6 percent, according to David Gibson, a Tokyo-based analyst at Macquarie Securities Ltd.

"At this point, only one of two key areas that are currently under fire is being taken care of," said Dr. Serkan Toto, an expert on the Japanese social gaming market. "I wouldn't be surprised to see the government crack down on gacha once again (for example by forcing game providers to display the probability of getting certain cards), or (which is more likely) push the industry to get the real-money trading phenomenon of virtual items under control."

Neither DeNA nor Gree had any immediate comment on the matter. This could substantially affect the growth of the mobile social games market in Japan, with possible ripple effects elsewhere.

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I'm really impressed that the Japanese government is doing this. It seems obvious to me that certain game mechanics (especially in social gaming) have crossed the line to "gambling" (for virtual items), which just seems like a sneaky way to enter the gambling market in a unlicensed form (especially when targeted at kids).

I think its inevitable that social gaming becomes more regulated going forward, world-wide.

And in app purchase starts to find itself in hot water as predicted. I don't mind having one off payments for extra features like new tracks for a racer or new maps for a multiplayer game but, constant buying of extra credits to try your luck at getting in game items is gambling pure and simple. This was bound to get noticed sooner or later.

Yet how is this any different from that of trading cards? You go and buy a packet in order for a chance at a "rare" item, its just in this case the chance of getting the rare item (Probability of A * Probability B ...) is somewhat blanketed by the short-term goals of getting each consecutive item.

The reason why I use the trading card analogy, as well as to relate the activity to a traditional childhood past-time, is to also highlight the use of "gambling" in big-budget console video games, as i personally can't see any difference in this from EA's FIFA Ultimate Team trading card campaign? (I must admit I don't know much about Ultimate Team or the algorithms that it uses, but it seems like just some sort of way to pay for randomly generated items)

In short, gambling is defined as an action that matches all three of this list:
- pay-to-play
- chance (skill does not affect gameplay)
- reward (real money).

Trading cards only match the first two, not the last. However, if trading for real money is facilitated or encouraged by the manufacturer (by and large authorities accept that there's nothing the manu can do about unauthorised trading) then that's enough to tick the third box as well.

Plus, physical trading cards are to some extent regulated by the seller (five pack limits, etc) and the logistical availability of more packs. Infinite-amount virtual items are a different matter, that's far more like the spin of a fruit machine.

Also, referring to the line "essentially a lottery spin to get a virtual item," I'd be interested to know the actual mechanic used in the mobile games. The gacha machines are a lottery - a predetermined set of results delivered in a random order (think of a box of scratchcards in a newsagent), but if the mobile games are using pure no-memory random, then that's a different mechanic covered by different legislation, at least in the UK.

At least trading cards are something physical, and have a real-world dollar value attached. Its possible to trade to another person a bunch of low-value cards in exchange for a high-value card. And a lot of the time, the value in a card is subjective - one persons low-value is another persons high-value.

Wow, £2 for a go on a virtual slot machine? I think I'd be put off if it cost more than 10p...

That really is an extortionate amount for a chance to win a virtual item. Customers have a chance to vote against this with their wallets, but as always they seem to actually enjoy being exploited. I'm glad the Japanese government is doing something about it.

'bout time and just the beginning. Backlash going to hit every country because our industry seems to have lost all compunction about caring for the customer. "Get them addicted, then screw 'em." That is the business model for all too many.

You can make just as many billions by waking up and telling yourself every day, "We love our customers." It just means you actually have to be creative, hire creative talent, learn how to manage creative talent, don't panic, the usual stuff in a creative, artistic entertainment business. We started catching Hollywood in so many ways, but the "freemium" "F2P" "micro transaction" craze has sucked the quality back out of games. The public backlash to our whole industry is going to smear many teams and companies that don't deserve it, but perhaps they've been too quiet on the sidelines, letting this happen and wondering if they were going to have to follow the new so-called model.

"Just Play: no in-game ads or popups, no in-game purchases or paying for that which by rights should be just a part of gameplay. You buy it (or pay the flat monthly subscription), you own it, it's yours. Just play."

I honestly don't see a problem with this mechanic and don't really understand the decision of the Japanese government. Why is it ok for casinos to have this mechanic, and not for games too? I mean, I see the ethical issue, which is: games are played by children, so it's easier to make them addicts and stuff, but why not put a 18+ age rating on these games, instead of declaring the game mechanic illegal? It's the same with electronic poker and roulette machines.. I wouldn't let my kids spend money on these GAMES because they represent gambling and they could easily become addicts. Also, if I knew that a game has a 'gambling mechanics' tag, I'd definitely be against them playing it.

I'm surprised by this. Japan's government is not known for strong regulation. In fact, they're known to pretty much let their big businesses do their thing, if I've studied correctly. It's encouraging, but surprising.

The lottery is regulated and controlled by authorities and Casinos are illegal. So that's why the Japanese government acted in such manner and it's logical that they did so. Nothing to argue here anymore :)

But for less restrictive societies (for example the U.S, EU,etc.) I think it would be a clear act of coercion to forbid a game mechanic.

@ Sam. That was a really good blog post that seemed to EXACTLY answer my questions!It is interesting then that the main thing that (usually) discriminates between what can and cannot be classed as gambling is a "tangible" reward.

Also a question about these "gacha" mechanics, when a consumer uses this "slot machine" is there always a prize given out or is there a chance for them to get nothing?

@Eoin: The classic physical gachapon machine works exactly like buying a pack of trading cards - you always get something, but some things are rarer than others. They look like bubblegum machines but they dispense capsules with toys/keyrings/whatever in them instead. Here's a decent collection of photos.

Again, this is not considered gambling because there is no central way to turn the prizes into actual money. But they have the same problem in that people get obsessed with finding the rare items.

(Before anyone asks, yes my day job is writing arcade machines, some of which are gambling machines. It's like being a publican who worries about his customers becoming alcoholics.)